December 23, 2008
The Madoff mess will test the limits of suits against auditors. Madoff's auditor, an obscure three person firm run out of a strip mall, is not likely to have much cash. Lawyers are not suing the auditors of fund of funds managers that sent individual investors to Madoff. The auditors of the intermediaries should have, apparently, warned the intermediaries of the shaky auditing of Madoff. The suits are novel and a stretch. Madoff's auditor suffers from a classic auditor's conflict, trying to keep a client happy and, at the same time, performing sound auditors for the client's investors. The auditors of the intermediaries do not have the clear conflict - their audit clients, the intermediaries, have a clear stake in knowing the truth about the health of a fund into which they put individual's cash. An argument againt the auditors of intermediaries will rest on a test prudent and reasonable actions. A duty of care, not a duty of loyalty argument, is harder to win. In any event, there is also the nagging third party beneficiary problem in the case (can investors sue?? for what??) that dogs even traditional cases..
December 23, 2008 | Permalink
TrackBack URL for this entry:
Listed below are links to weblogs that reference Suing Auditors:
How much more difficult is it to audit a business like Madoff's? It wasn't a hedge fund. It was a collection of individual managed accounts.
Also, I thought one of the big problems is that the accounting firm which compiled the books and records for Madoff also did the audit. For obvious reasons, this is a big no no.
Posted by: Methinks | Dec 24, 2008 8:54:12 AM